7 PM | Green shoots of economic growth | 20th July, 2019

Context: capital investment in agriculture and its impact on Indian economy

Public investment in agriculture has played a vital role in promoting growth of agricultural output because it includes expenditures directed to agricultural infrastructure, research and development and education and training etc.

Need for capital investment in agriculture:

  • $ 5trillion economy: present government aiming to take the economy to $ 5 trillion economy by 2024-25. To achieve this target, strong agricultural growth also needed. Present status of agriculture sector is in doldrums; to revive the agriculture sector capital investment is imminent.
  • Doubling the farmer income: by 2022 farmer should get the double the income what he is earning now. So, the present capital investment rate falls short to realise the target. So to double the income of farmer, need to step up the investment as soon as possible.
  • Food processing: according to united nations food and agriculture organisation (FAO), India is home to more than 190 million Indians going hunger daily and at the same time around $ 14 billion (96,000crore RS) food wastage in India due to lack of proper food storage facilities.
  • Foreign direct investment: according to Invest India report, around 1.5 billion USD foreign investment came to food processing sector. So there is a huge potential to tap in Indian food processing industry
  • Demand: present consumption of food and its present value stood at $ 370 billion. And this food consumption market will reach $ 1trillion by 2050. So the government should take a giant step to raise capital for agriculture sector
  • Live stock: In India livestock considered as a supplement to farm income to farmer. But at present day livestock contribution to agriculture GDP is nearly 30%. And many of the livestock farmers earning more than traditional agriculture farmers. India is home to highest number of livestock population in the world, investment should make to utilise this surplus.
  • Renewable energy: investment in renewable energy generation on fallow farmland and in hilly terrain would help reduce the burden of debt-ridden electricity distribution companies and state governments and farmers no need to rely on discom companies for power supply.

Challenges to capital investment in agriculture sector:

  • Current expenditure: The falling public investment in agriculture was mainly because of a large proportion of the resource flows to the agriculture sector going in to current expenditure on subsidies for fertilizers, irrigation, electricity, credit and other agricultural inputs, rather than investment.
  • Public and private investment: the share of agricultural sector’s capital formation in GDP has been revolving around 2.7% to 3.3% in post reform period. Even though the private investment is rising but that to be occasionally. Public investment usually induces the private investment, because of low public investment; private investment in agriculture sector is also declining.
  • Subsistence sector: agriculture always looked upon as subsistence sector by government and industrialists. So the industrialists and government has less focus on agriculture and very low intention of making agriculture from subsistence to market determined sector.
  • Extension services: Despite a wide range of reform initiatives in agricultural extension in India in the past decades, the coverage of, access to, and quality of information provided to marginalized and poor farmers is uneven. Extension services have declined over time due to chronic underfunding of infrastructure and operations, no replacement of aging researchers or broad access to state-of-the-art technologies.
  • FDI: according to Invest India, food processing signed Memorandum of Understanding with industries worth of 13.56 billion USD. But realized amount is just 1.5 billion USD. So realization of potential FDI to actual investment is also a challenge to investment in agriculture.
  • Lending: government policies and schemes along with commercial banks focus on short term lending to agriculture like one crop season or two cycles of season. Banks are not willing to provide long term lending towards landscape development like changing fallow land to sowing land.

Government initiatives and measures to improve investment in agriculture sector:

  • Long term irrigation fund: To address the problems associated with perennial irrigation water crisis in rural India, government of India signed an agreement with NABARD to operationalize the long term irrigation fund. The Nabard is funding the central and state share of 99 prioritized irrigation projects under the PMKSY through long term irrigation fund (LTIF). It is mandated to provide Rs 70,000crore loan to these projects to be completed by 2019.
  • Public private partnership (PPP): PPPs could help spur the development of the food processing industry, one of the newest sectors in Indian agriculture. The food processing industry must do more than just increase the shelf life of food, preserve food nutrients and provide fortified products.
  • An important role of the government, besides funding, will be to create an enabling environment for private investment. This needs to be done through tax rationalizations, duty exemptions, increases in public spending, priority sector lending and FDI. Steps such as these that will boost private sector investment in supply chain infrastructure and services, leading to a reduction in waste and more added value.
  • Improving access to credit: Kisan credit card (KCC) loans are given to farmers for crop cultivation as a running account facility. Loans available through KCC are very low, so the government and RBI should work together to increase the loan amount.
  • Patient capital: present agriculture growth is in declining phase, to revive the agriculture growth need patient capital (as financial returns to investment are unlikely to materialize in the initial years.) like rural infrastructure development fund (RIDF).

Way forward: Though economic transition has seen significant growth contribution from services and industry, agriculture remains the most trusted sector in helping alleviate poverty, hunger and malnutrition and ensuring better income distribution. But Public investment in agriculture research and development in terms of percentage share in agriculture GVA stands at 0.37%, which is fairly low in comparison to between 3% and 5% in developed countries. Therefore, public investment in agriculture should see a commensurate rise with a healthy mix of education, research and extension encouraging ‘blue-sky thinking’ in all segments, while pushing for a targeted pruning of public expenditures on subsidies, kind transfers, loan waivers and populist measures. An inclusive business model facilitating strong investor-farmer relations should be created, with a legal and institutional framework for governance. Expanding institutions is essential to accommodate the developmental impacts of foreign agricultural investment.

Source:https://www.thehindu.com/opinion/op-ed/green-shoots-of-economic growth/article28598733.ece.

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